April 27, 2010

Beyond the Boundary Lines - IPL saga thread

Please use this thread to post all the articles about IPL related articles.

How to own an IPL team

Mumbai, April 20: You didn’t have to give up a leg or an arm to own an IPL team. Not if you were brave enough to take the plunge three seasons ago.

Back in 2008, the bidders needed a stomach for risk rather than a sackful of dollars. “You don’t have to be India’s top industrialist to own an IPL team,” said Mumbai-based Nabankar Gupta, founder and CEO of Nobby Brand Architects and Strategic Marketing.

“IPL offers an opportunity for an investment with returns and cash flows quite similar to people investing in companies, real estate and shares. You can share ownership and limit the amount you need to invest in a team,” Gupta added.

Franchise owners are cagey but they are more circumspect about the numbers. However, a key factor that largely goes unnoticed when eye-popping figures are bandied about is the franchisees have a 10-year window to pay the money. They don’t need to stump up the cash at one go.

Take a team like the Kolkata Knight Riders (KKR), which couldn’t make it to the semi-final this time because of its poor net run rate even though it put a decent 14 points on the table.

Shah Rukh Khan’s investment in the side hasn’t been very high: he is reported to have put in about Rs 14 crore by way of equity while Jay Mehta and his wife Juhi Chawla chipped in with Rs 9 crore or so. That’s small beer for King Khan — he makes that kind of money with a couple of advertisements.

A source said KKR — a team that was valued by Brand Finance of the UK as the second highest this year after Chennai Super Kings on the back of its robust sponsorship earnings courtesy King Khan — would make a small profit this year.

KKR’s yearly franchise fee of around Rs 35 crore is the biggest cost element in its Rs 90-crore annual budget. A third of the financing has come from debt worth about Rs 30 crore.

When it comes to earnings, KKR will get about Rs 40 crore from the BCCI from the central pool of revenues.

Under the revenue sharing formula, the BCCI gets to keep 20 per cent of the central revenue in the first three years while the teams divide 80 per cent of the revenues.

Under the rules, the BCCI’s share will rise to 30 per cent in seasons 4 and 5, and further to 40 per cent from seasons 6 to 10.

Teams that make it to the semi-final will get a little more cash, said the source.

The KKR numbers serve as a template for most teams — give or take a couple of crores. The Mumbai Indians’ budget won’t top Rs 110 crore while the Rajasthan Royals side — which put in the lowest bid at $67 million — won’t have to cater for a budget above Rs 80 crore. Besides, for Mumbai, which paid a higher fee, revenue also will be higher.

There’s a thumb rule here: most teams won’t need an equity capital — the money that the owners need to stump up — of more than Rs 25 crore to fund a business that is worth Rs 100 crore on an average.

Throw in a debt component of about Rs 25 crore and these owners are in clover. The rest of the money will come out of sponsorships, guaranteed payouts from the BCCI and other streams of revenue.

Read more HERE.